Tremendous

An angel investor's take on life and business

  • Time to Bail on Credit Suisse

    tl,dr: Get out of Credit Suisse.

    The Swiss bank is suffering severe stress today, with its stock and bond prices plummeting. Depositors and investors are questioning its ability to survive.

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    The Swiss National Bank has pledged to offer liquidity to CS if necessary, per Bloomberg.

    However, the stock has barely reacted as of Wednesday afternoon in New York. Investors seem unconvinced.

    What has gone so wrong at Credit Suisse?

    Just about everything. Again from Bloomberg:

    Credit Suisse’s failings have included a criminal conviction for allowing drug dealers to launder money in Bulgaria, entanglement in a Mozambique corruption case, a spying scandal involving a former employee and an executive and a massive leak of client data to the media. Its association with disgraced financier Lex Greensill and failed New York-based investment firm Archegos Capital Management compounded the sense of an institution that didn’t have a firm grip on its affairs. Many fed up clients have voted with their feet, leading to unprecedented client outflows in late 2022. 

    Problems came to a head today as CS’s largest investor, the Saudi National Bank, refused to provide more capital to CS.

    Credit Suisse appears to have ample reserves to pay depositors.

    It has enough cash and highly liquid assets to pay back half its liabilities quickly. It even has 62 billion Swiss francs of cold, hard cash on deposit at central banks.

    Yet its stock is in the toilet, and its bonds trade at levels implying a strong possibility of default. The cost to insure its bonds through credit default swaps is also sky high.

    Are all 3 of these markets wrong? Maybe, but I wouldn’t want to make that bet.

    For companies and individuals, there is little downside to pulling your money out.

    Even if the Swiss National Bank, Federal Reserve, or others bail them out, there could be delays in getting your money. That was the case with SVB.

    Can you afford that delay?

    In the end, I doubt central banks will let CS collapse. But things could get very messy in the mean time.

    What do you think of the problems at Credit Suisse?

    Leave a comment and let me know!

    More on markets:

    SVB Fallout

    Where Should Startups Put Their Money Now?

    SVB Fails

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Where Should Startups Put Their Money Now?

    This is not investment advice.

    So, where should we put our money? The collapse of SVB has every startup looking for answers. The key for the future is diversification.

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    Here are some ways to mitigate risk:

    The 50/50 Split

    The natural next move is to put all our money into JP Morgan or another giant bank. That should fix the solvency issue, but it raises others.

    Startups often struggle to work with big, old banks. They can be slow moving and unwilling to offer basic products like business credit cards.

    So we need more flexibility. But we don’t want to go through another SVB.

    How about we split the difference?

    We could keep half our money in a Big 4 bank (JPM, Citi, BoA, Wells). The other half can go to a bank that specializes in startups (Mercury, Brex, etc.).

    The Bullet Approach

    Investor Jason Calacanis proposed an intriguing solution of his own: 1 primary bank and several smaller accounts to hold emergency funds.

    Perhaps you use Mercury as your primary bank. Then, you could also have 1 payroll’s worth of money in each of 3 big banks (JPM, Citi and BoA).

    Should anything happen to Mercury, you can still make payroll 3 times.

    This is a great solution. It keeps most of your money in one place, making it easy to pay vendors and employees.

    But it also preserves safety in a crisis.

    Zombie Apocalypse Approach

    The safest approach is to never exceed the FDIC $250,000 limit at any bank. However, this is not workable.

    $250,000 isn’t even a single payroll for many companies. Payroll systems and vendor payments would have to constantly be switched over.

    We need bank safety. But we also need to run a business.

    Wrap-Up

    We’re still working out the best response to SVB. In the end, no approach is without risk.

    But any setup that gets us multiple accounts is a huge improvement.

    There’s also a big opportunity here. If a startup can make it easy to balance money across banks, they’ll find a lot of customers.

    Where will you be keeping your startup’s cash and why?

    Leave a comment and let me know!

    More on tech:

    SVB Fallout

    SVB Fails

    Venture Funding Down 65%

    Get the blog before anyone else…subscribe!

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • SVB Fallout

    All modern economies use money. You have to put your money somewhere. Shouldn’t it be safe?

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    The Federal Reserve thinks it should be, and I couldn’t agree more. Over the weekend, the Fed, Treasury and FDIC acted decisively to stop the banking crisis.

    From Bloomberg:

    The Federal Reserve brought out its bazooka Sunday, guaranteeing funds for any bank whose depositors might have been clicking “withdraw” over the weekend. The central bank saw clear potential for a systemic crisis in the closures of SVB and Signature Bank and acted to kill it before it got started.

    Our government acted decisively and all US bank accounts are now protected.

    So what’s the future for banking in America?

    You have to put your money somewhere, right? And whether you’re an individual or a business, you have to assume that place is safe.

    Let’s make regulation catch up with reality.

    There should be no limit on FDIC insurance. Any person or business putting its money in a bank account should have peace of mind.

    After all, $250,000 is a lot to an individual, but it’s not much for a business. That may not even cover a single payroll.

    What’s at stake here is hard working Americans getting the paychecks they earned. No worker should be unable to pay her bills because a bank made bad decisions.

    What’s more, individuals and businesses aren’t equipped to figure out how safe a bank is. That’s the job of regulators.

    If the regulators fail to prevent disaster, we shouldn’t take it out on the depositors.

    But isn’t this a license for banks to do anything?

    Not with the right regulations. We should expand stress tests and tight regulation from just the biggest banks to all banks.

    This could prevent another SVB.

    We should also increase FDIC insurance premiums. Banks pay these premiums to get FDIC insurance.

    With the insurance expanding, the premiums must also rise.

    And what about the SVB executives and shareholders?

    Screw ‘em. Let them lose their jobs and money.

    They made bad decisions, and they deserve to pay, big time.

    But you know who doesn’t deserve to pay? Hard working people counting on a paycheck.

    Finally, what should founders do post-SVB? Create multiple bank accounts.

    Perhaps 50% of your money goes into a startup-friendly product like Mercury. The other half can go in old economy but rock solid JP Morgan.

    Splitting cash across several accounts, including one or more Big 4 Banks (JPM, BoA, Citi, Wells) is wise. Expect many VC’s to require it.

    We dodged a very big bullet this weekend. Let’s celebrate!

    More on tech:

    SVB Fails

    Venture Funding Down 65%

    Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

    Get the blog before anyone else…subscribe!

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

    Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?’” by BrookingsInst is licensed under CC BY-NC-ND 2.0

  • SVB Fails

    When your founders’ butts are on the line, don’t be loyal to a bank. Be loyal to your founders.

    That’s my biggest lesson from the chaos at Silicon Valley Bank. SVB was just shut down by the FDIC.

    Companies could lose deposits above $250,000. From Bloomberg:

    Uninsured depositors will get a receivership certificate for the remaining amount of their uninsured funds, the FDIC said. As the agency sells off Silicon Valley Bank’s assets, future dividend payments may be made to uninsured depositors, according to the statement.

    Though losses are possible, I think it’s unlikely.

    When Washington Mutual failed in 2008, no one lost a dime. WaMU accounts simply became JP Morgan accounts.

    I think the same will happen here.

    What pisses me off the most here is major investors who told their founders to stay in SVB. I won’t name names, but some heavy hitters gave this poor advice.

    As usual, Founders Fund knew better. They advised their founders to pull out of SVB.

    For the record, so did I:

    The issue here is asymmetric risk. If SVB had stayed alive, you just keep your money.

    If they fail, you could lose it.

    So there’s little or no upside to staying with SVB. But there could be a massive downside.

    And here we are, on that downside.

    In talking with founders, I find most early stage companies are using Mercury anyway. Mercury’s strategy of spreading deposits between banks seems wise:

    Mercury looks like a solid choice. But ultimately, the safest banks in a time like this are the biggest Too Big to Fail institutions.

    That’s banks like JP Morgan, Citi, and Bank of America.

    Best of luck to all founders dealing with this difficult situation. If there’s any way I can help, never hesitate to ask.

    More on tech:

    Venture Funding Down 65%

    Beware Pre-Revenue Companies

    Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

    Get the blog before anyone else…subscribe!

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

    Photo: Peter Thiel’s Founders Fund got it right, as usual. “Peter Thiel” by jdlasica is licensed under CC BY 2.0.

  • Venture Funding Down 65%

    Raising money just got harder. Global venture capital funding fell 65% in February from a year prior, according to a new report from S&P Global Market Intelligence.

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    As an investor, I see the funding freeze every day. Many startups I meet are completely out of money and facing liquidation.

    Here are some trends I’m seeing in today’s market:

    Fewer Deals Getting Done

    In general, I see a lot fewer deals happening.

    Everyone has slowed down, from big VC firms to syndicates to individuals. Deal volume seems to be down by around half.

    Even when a great company is raising and the deal gets done, it often doesn’t fill up.

    Valuations Are Down

    In 2021, I routinely saw seed stage deals at $25 million, $50 million, even $100 million!

    Now, a typical seed stage deal is more like $8 to $12 million. I don’t see many above $18 million.

    Strong seed stage companies usually have about $200,000 to $500,000 a year in revenue.

    Poor Business Models Are Unfundable

    In 2021, all you needed was growth. No one cared how you got it.

    Today, growth has to be cash efficient. If your unit economics aren’t solid, it’s hard to raise.

    Let’s say it costs you as much to acquire a customer as you’ll ever make from them. A business like that can never be profitable.

    VC’s don’t want to throw more money at a broken business model.

    Pre-Revenue Companies Are In a Tough Spot

    If you have no revenue, you’re totally dependent on outside funding. That funding is now much harder to get.

    What’s more, you don’t have a revenue track record to show investors.

    Getting those first customers just got a lot more important.

    Profitability Is the Trump Card

    If you can tell a VC you’re profitable in 2023, you’ll impress him. You also won’t need his money.

    That’s a great position to be in, especially in a down market. You can dictate the terms or just wait until markets recover.

    2023 belongs to the founders that can control their own destiny.

    What are you seeing in markets today?

    Leave a comment and let me know!

    More on tech:

    Beware Pre-Revenue Companies

    Build in a Small Town!

    Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

    Get the blog before anyone else…subscribe!

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Beware Pre-Revenue Companies

    What’s scarier than a clown? A pre-revenue startup with a $5 billion valuation.

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    That was autonomous trucking startup Embark Trucks, which now faces liquidation. From Crunchbase News:

    Autonomous trucking startup Embark Trucks capped off one of the faster riches-to-rags stories of the SPAC era, announcing that it is laying off most employees and winding down operations.

    The planned closure comes just 16 months after San Fra1ncisco-based Embark went public through a SPAC merger at a target initial market capitalization of $5.16 billion. Even by the bubblier market conditions of the time, the deal set an astounding valuation for a pre-revenue company, with backers touting its “sophisticated self-driving software,” built to navigate trucks on long-distance freight trips.

    By all accounts, founder Alex Rodrigues tried his best. But the demise of Embark shows just how dangerous it is to invest in pre-revenue companies.

    As an angel investor, I never touch a pre-revenue startup.

    Maybe that pre-revenue company becomes the next Google. But today, it’s completely reliant on fundraising and doesn’t have a single paying customer.

    The sad truth is most pre-revenue companies will never make a dime.

    As an investor, you have to play the odds. If you invest in pre-revenue companies, you will lose your money the vast majority of the time.

    Once those first customers roll in, you have a much better idea what your market is. You can also look for a growth trend.

    What’s more, the company is no longer entirely dependent on the next round of funding.

    But what if you miss your chance to invest?

    Investors have to take that risk. And never forget, startups are always raising money.

    More than likely, there will be numerous chances to invest in the future.

    Best of all, a pre-revenue company and a company with some early revenue often go for about the same price! What’s the better bet — a company with no customers at a $5 million valuation or a company with $200,000 a year in revenue at $8 million?

    Unless you’re an extremely experienced investor, the latter bet is better 10 times out of 10.

    Back to Embark….if a pre-revenue company at $5 million is a bad bet, why would you pay $5 billion? Even with a few customers, that price would be rich.

    Had investors simply waited until they signed 3 paying customers, they could’ve averted billions in losses.

    So, should we ignore all pre-revenue companies?

    No. Actually, I meet with them regularly.

    Sometimes a great team has an awesome product that they’re just starting to sell. It’s good to meet them early and get the inside track.

    But it’s not the best time to invest.

    What do you think of pre-revenue startups?

    Leave a comment and let me know!

    More on tech:

    Build in a Small Town!

    Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

    Let’s Double the Human Population

    Get the blog before anyone else…subscribe!

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Build in a Small Town!

    For decades, if you wanted to build a startup, you had to be in Silicon Valley. But today, the best place might just be Tennessee.

    Or Omaha. Or Little Rock.

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    In today’s market, building away from the coasts offers some huge advantages:

    1) Lower burn. This is critical in today’s tough fundraising market.

    When I meet with companies in NYC and SF, they often have massive burn rates. Part of the reason is high cost of living.

    If you rent is $2000 or $3000 a month, you have to pay yourself and your team more. But what if you could rent a 1 bedroom for $750?

    In Biloxi, MS, you can!

    This means your seed funding will last much longer. That gives you precious time to find product-market fit.

    2) Exposure to different opportunities.

    I recently met with a company in a small town in the Midwest. They’re building SaaS for meatpacking.

    No one in New York or SF is going to think of that. After all, we don’t have much of a meatpacking industry!

    The middle of the country simply has different industries than the big coastal cities. And they need tech too!

    Would you rather sell a unique, valuable tool to meatpackers or try to sell the 10th team collaboration app to an over-SaaSed startup?

    3) Global teams. In the past, you had to be in Silicon Valley or New York because that’s where the talent was.

    Now, remote work is common. A startup based in Iowa could hire a developer in SF and a product manager in Brazil.

    This levels the playing field, big time.

    4) Fundraising is on Zoom. Today, I met with founders in Nigeria, Canada, New York and DC.

    Many of the investors are still in the Bay Area and New York. But the founders are everywhere.

    Even as COVID recedes, fundraising has stayed on Zoom. It’s so efficient, I don’t think we’ll ever go back.

    This means that a Kalamazoo startup and a Palo Alto startup are on similar footing. They both pop up as boxes on the VC’s screen!

    If you have a great product and lots of happy customers, investors will take you seriously.

    Wrap-Up

    There are still some advantages to being in a tech center. You can meet investors at in-person events and learn from other founders.

    But balanced against the high costs, you’re better off in the heartland.

    Where do you think is a better place to build, SF/NYC or a smaller town? Leave a comment and let me know!

    More on tech:

    Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

    Don’t Go Into Debt to Fund Your Startup

    Sequoia Dumps Citizen: Ruthless, or Reasonable?

    Get the blog before anyone else…subscribe!

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

    What does everyone get wrong about angel investing? What’s the future of Twitter? I dug into that and more recently at Starta VC!

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    A bunch of smart young interns at Starta peppered me with questions for an hour. Their knowledge and depth of thinking really impressed me.

    Here are some of my favorite moments:

    3:38: How the book Angel led me into angel investing

    7:52: Misconceptions about angel investing

    9:12: Founder power struggles

    11:40: Running out of money isn’t the #1 killer of startups

    18:20: How I evaluate founders

    42:27: The only reason VC’s exist

    44:15: How to network and why

    45:40: Opportunities in the down market

    52:11: What happened to Clubhouse?

    54:56: Twitter prediction

    These young people are the future of our industry. The future is bright.

    What parts did you like? What did I get wrong?

    Leave a comment and let me know!

    More on tech:

    Sequoia Dumps Citizen: Ruthless, or Reasonable?

    Let’s Double the Human Population

    Don’t Go Into Debt to Fund Your Startup

    Get the blog before anyone else…subscribe!

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Let’s Double the Human Population

    Sounds crazy, right? But doubling our population is the goal of one of the hottest new startups, Figure. The catch: half will be robots.

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    Figure emerged from stealth yesterday, unveiling a humanoid robot. It plans to build one for every person on earth, doubling our productive capacity.

    Figure is addressing a very real problem: slowing population growth. Worldwide human population is expected to peak in 2100.

    Some countries are already shrinking, including China and much of Western Europe. For countries like Japan and Russia, deaths outnumber births by 2:1 or more.

    But whether population is rising or falling, jobs must be done. For many countries, the solution may be robots.

    Figure’s robot mimics a small human. It’s 5’6”, 132 pounds and walks about the same speed we do. Being shaped like a human lets it operate smoothly in an environment built for mankind.

    Is this creepy?

    Yeah kinda. But unless humans decide to have more babies, it’s hard to see an alternative.

    In the near term, human workers (just the need to specify tells us something) are likely to view Figure as a threat. Indeed, Figure aims to drastically cut labor costs.

    From the company’s website:

    Today, manual labor compensation is the primary driver of goods and services prices, accounting for ~50% of global GDP (~$42 trillion/yr), but as these robots “join the workforce,” everywhere from factories to farmland, the cost of labor will decrease until it becomes equivalent to the price of renting a robot, facilitating a long-term, holistic reduction in costs.

    This means much lower wages for manual laborers.

    But I’m optimistic that humans will find safer, more creative and better paid work. After all, YouTubers and yoga instructors barely existed 10 years ago.

    Regardless of desirability, making 8 billion of anything is incredibly hard.

    Let’s take another big, complicated product: cars. Global automobile production is only about 80 million per year — just one percent of the number of robots Figure hopes to build.

    Whether Figure succeeds or not, I’m certain about one thing. VC’s are going to eat this up. I can practically hear the armored cars pulling up in front of Figure HQ now, ready to dispense billions.

    There’s no down market for stuff like this. It’s a giant opportunity and involves the current hot thing, AI.

    I just wish I had a slice!

    Do you think Figure’s robots are creepy, awesome, or creepy and awesome?

    Leave a comment and let me know!

    Have a great weekend everyone!

    More on tech:

    Sequoia Dumps Citizen: Ruthless, or Reasonable?

    From Design to Code in Seconds with AI

    ChatGPT for Medicine

    Get the blog before anyone else…subscribe!

    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. 

  • Don’t Go Into Debt to Fund Your Startup

    In 2023, startups are hitting the wall. Many are down to their last few dollars. But how about a loan?

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    Going into debt is a mistake I am seeing more and more founders make.

    Debt comes in a variety of forms. Founders use bank loans, SBA loans, and even credit cards to fund their businesses.

    But you should not go into debt for an early stage startup.

    Avoid Debt Like the Plague

    Most early stage startups fail. Best case scenario, about 70% of my seed stage bets are going to 0.

    For me, that’s fine. I can afford to lose the money. But for a founder, an indebted startup going to 0 can be disastrous.

    Most business loans require a personal guarantee. That means that if you borrow money and can’t pay, the lender can (and will) come after you personally.

    This means you could lose your bank accounts, 401k, even your house. No startup is worth that.

    Losing your business is hard. You’ll be emotionally drained and forced to look for a job.

    You don’t want to add personal bankruptcy to those problems.

    What About Venture Debt?

    Venture debt is different.

    Venture debt can work for some later stage companies with large and predictable revenues. But it’s not a viable path for an early stage startup.

    What’s more, venture debt generally doesn’t involve a personal guarantee. If the company blows up, you can walk away.

    But Early Stage Startups Raise Convertible Debt!

    Perfectly true, although SAFE’s are more popular these days. But convertible debt works very differently from most business and credit card debt.

    Convertible debt operates more like equity.

    You don’t pay the interest in cash. Instead, you just give the investor extra shares.

    And if the company doesn’t make it, the founder can walk away. There’s no personal guarantee.

    Wrap-Up

    I don’t want to see you lose your business. But we have to admit, it’s possible.

    If that happens, you want to be free to walk away and start over. Clean slate.

    What you don’t want is to compound a bad situation with losing your house and all your money.

    Be very careful with debt. And always work with an attorney who knows tech startups inside and out.

    Win or lose, you must live to fight another day!

    Do you see startups going into debt in this tough market?

    Leave a comment and let me know!

    More on tech:

    Sequoia Dumps Citizen: Ruthless, or Reasonable?

    I See Negative Gross Margin Businesses

    Dawn of the Dead VC’s

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    If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

    Save Money on Stuff I Use:

    Fundrise

    This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

    More on Fundrise in this post.

    If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

    Misfits Market

    I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

    I wrote a detailed review of Misfits here.

    Use this link to sign up and you’ll save $15 on your first order. e